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Sherman Antitrust Act (1890) Facts & Worksheets

Sherman Antitrust Act was a federal statute passed by Congress in 1890. Primarily penned by Sen. John Sherman, it was an act to protect trade and commerce against uncontrollable monopolies.

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The Sherman Antitrust Act, enacted in 1890, establishes the rule of free competition in commercial transactions. It was named after its principal author, Senator John Sherman, when Congress passed it. It forbids anticompetitive agreements and unilateral behavior. Under the Sherman Act, a body of law was eventually developed that made certain types of anticompetitive behavior illegal. Its goal was to prevent price increases through trade restrictions, allowing businesses to succeed legitimately while protecting consumers from abuses.

See the fact file below for more information about Sherman Antitrust Act, or download the comprehensive worksheet pack, which contains over 11 worksheets and can be used in the classroom or homeschooling environment.

Key Facts & Information

Background

  • It was enacted during the Gilded Age, from the 1870s to 1900, when the United States underwent significant economic, institutional, and technological transformation. Wages in the United States were significantly higher than those in Europe, causing millions of Europeans to migrate to the United States.
  • The railroad industry, in particular, overgrew as a result of a large number of migrant workers. However, it has resulted in even more ruthless competition, with small businesses finding it more challenging to compete with large corporations.
  • Because of the imbalance in the business industry, there has been discussion about ensuring a level playing field for all sizes of enterprises by controlling the large ones.
  • Large corporations created unfair competition by merging with other large corporations to form a strong conglomerate that would dominate the market.
  • Such unfair business competition prompted the United States Congress to take action to regulate trade and commerce to prevent market monopolization. Furthermore, an honest and natural method of gaining power exempted other monopolies from regulation.

John Sherman

  • He was an American politician serving both houses of the US Congress as a member of the Republican Party, from which he sought presidential nomination three times but was never chosen by the party.
  • He was the principal author of the Antitrust Act named after him, which became law in 1890 through President Benjamin Harrison.
  • In 1897, President William McKinley appointed him as the Secretary of State.
  • In 1898, he retired from politics due to his failing health and other declining faculties that hindered him in handling his job.
  • In 1900, he died at his home at age 77.

Sections

Section One

  • This section made competitive trade practices illegal through regulations such as price fixing agreements, exclusion of certain competitors, and production output limitations.
  • Engagement in a contract or merger that was regarded as anti-competitive was judged a felony.
  • The penalty was either a fine of up to $10 million for a corporate entity and $350,000 for an individual or up to three years in prison.

Section Two

  • The second section prohibits monopolizing trade or commerce in the United States through mergers and acquisitions, gaining too much power at the expense of smaller enterprises.
  • The Federal Trade Commission (FTC) was tasked with approving or rejecting mergers and acquisitions in the United States. At the same time, those who violated would be charged with a felony and turned over to the Department of Justice for legal action to be taken against them.

Section Three

  • Through the third section, the provisions of the first two sections of the act were extended to the District of Columbia and other US territories.

Legacy

  • More than a decade after its passage, it was deemed ineffective because it was used only rarely against industrial monopolies and was primarily used against labor unions, which the courts regarded to be illegal combinations.

Northern Securities Co. against the United States

  • When it was first implemented, there was growing hostility toward companies that were seen as monopolizing certain markets, such as the merger of the American Railway Union and Standard Oil, which caused their smaller competitors to form conglomerates. Such actions increased consumer prices, while those businesses that could not keep up with the trend were forced out of business.
  • Consumers praised the Act during its first years of implementation because they were the first victims of monopolization and competition between small and large businesses.
  • Northern Securities, a holding company that controlled the railroad companies Northern Pacific, Chicago, Great Northern, Burlington, and Quincy, threatened to monopolize the industry in 1904, aiming for national dominance. The public was alarmed and, along with antitrust advocates, demanded that the government intervene to prevent what they saw as an unfair business practice against small businesses.
    • Initially, the term “trust” referred to collusive behavior in the business industry that results in unfair competition.
  • In response to the public outcry, President Theodore Roosevelt directed the Department of Justice to file legal action against Northern Securities.
  • The Supreme Court heard the case in 1903, and the majority of the judges ruled in favor of the holding company’s stockholders, who won by one vote.
  • Northern Securities Co. was dissolved, and its stockholders were forced to manage each railroad company separately.

Additional Antitrust Laws

  • In 1914, two additional antitrust laws were passed by Congress. Antitrust laws target unlawful mergers as well as their business practices with the courts to decide which ones are illegal. The courts applied these laws even in changing markets, with the same basic goal of protecting the process of business competition for consumers.
  • The Federal Trade Commission (FTC) Act makes it illegal to engage in unfair or deceptive competition, acts, or practices. Although the FTC does not enforce the Sherman Act, it can introduce cases under the FTC Act against practices that are similar to those that violate the Sherman Act.
  • The Clayton Act addresses mergers as well as interlocking directorates, which are people who make business decisions for two competing companies, which is not in the Sherman Act.

Modern Trends

Inference of Conspiracy

  • The difficulty for antitrust plaintiffs increased as a result of the courts holding plaintiffs responsible for increasing pleading burdens.
  • There was no specific context in Section 1 regarding how much evidence was required to support a conspiracy.
  • Since the 1970s, plaintiffs have been held to higher standards, providing an opportunity for antitrust defendants to sort out cases in their favor before significant discovery to avoid bearing the costs of cases.

Manipulation of Markets

  • During the first cases covered by the law, it was easier for plaintiffs to demonstrate market relationships by manipulating market definitions while ignoring basic economic principles.
  • Market definition is critical, particularly in the rule of reason cases and proving the harm caused by a conspiracy.
  • The trial judges in the US v. Grinnell, a 1966 case, referred to the market as consisting only of alarm companies with services in every state. The defendant was the sole player in this market, but the court considered all national markets.
  • A more sophisticated market definition is used in modern courts to prohibit a manipulative definition.

Monopoly

  • Monopoly was prohibited in the second section of the Act, as the court distinguished between coercive and innocent monopoly.
  • The Sherman Act was only intended to punish businesses that intentionally dominate the market through the misconduct discussed in Section 1 of the Sherman Act.

The Sherman Antitrust Act Worksheets

This bundle contains 11 ready-to-use The Sherman Antitrust Act Worksheets that are perfect for students who want to learn more about the Sherman Antitrust Act, which was a federal statute passed by Congress in 1890. Primarily penned by Sen. John Sherman, it was an act to protect trade and commerce against uncontrollable monopolies.

List of Worksheets Included

  • Sherman Antitrust Act Facts
  • Senator John Sherman
  • Economic Glossary
  • Other Antitrust Acts
  • Cartels Word Search
  • Let’s Play Monopoly!
  • Color Red or Blue
  • Sherman Case Study
  • Picture Analysis
  • Poster Making
  • Let’s Sum Up

Frequently Asked Questions

What was the Sherman Antitrust Act and why was it not successful?

More than a decade after its passage, it was deemed ineffective because it was used only rarely against industrial monopolies and was primarily used against labor unions, which the courts regarded to be illegal combinations.

What is an example of the Sherman Antitrust Act?

This section made competitive trade practices illegal through regulations such as price fixing agreements, exclusion of certain competitors, and production output limitations.

Who did the Sherman Antitrust Act protect?

Its goal was to prevent price increases through trade restrictions, allowing businesses to succeed legitimately while protecting consumers from abuses.

What did Sherman’s Antitrust Act do?

The Sherman Antitrust Act, enacted in 1890, establishes the rule of free competition in commercial transactions. It forbids anticompetitive agreements and unilateral behavior. Under the Sherman Act, a body of law was eventually developed that made certain types of anticompetitive behavior illegal.

Did Sherman Antitrust Act stop monopolies?

The second section prohibits monopolizing trade or commerce in the United States through mergers and acquisitions, gaining too much power at the expense of smaller enterprises.

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Use With Any Curriculum

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